Trump's China Tariffs in Flux
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. So the U.S. will delay applying tariffs on imported goods from Mexico and Canada for one month. That 25% levy was set to go into effect at 12.01 a.m. Tuesday, but it didn't.

The shift came after new commitments from both Mexico and Canada when it comes to the issue of border security. Meantime, there has not been a conversation with regard to a potential tariff on Chinese imports. For more, I'm joined now by Bloomberg Opinion columnist Shuli Ren, who joins us from Hong Kong. Shuli, it's always a pleasure. We know there's been this threat of a blanket

10% tariff on Chinese goods. I'm less concerned as whether or not there will be a reprieve than I am with trying to understand how this relationship between President Trump and Xi Jinping has changed now or shifted slightly during the early part of the second Trump administration. Can you help me understand this?

I think the table has turned quite a bit. I mean, back in 2018, the Chinese economy, domestic economy was going pretty well. In fact, you can say China's economy peaked by the end of 2019. And now, like at the beginning of 2025, the economy is probably in the deepest downturn since the Cultural Revolution in the

mid-1970s and then also that the whole economy is suffering from a pretty deep deflationary pressure so whereas in the u.s i mean despite all the all the trump's terror threats the u.s economy has proved to be pretty resilient so do you think then that china is especially vulnerable this time around and the trump administration may get more of what it's asking for

I think so. I mean, if you look at the Chinese economy, there are a couple of things, right? The property market, the consumer market and the export market. Basically, of all the big arrows of the economy, only the export sector was doing pretty well. And basically, Trump can threaten to dim the only bright light in this whole economy. And it's a pretty big deal for President Xi Jinping.

Where does TikTok enter this conversation? I'm wondering whether or not the U.S. has an upper hand and there may be a forced divestiture. ByteDance may relinquish its control of the U.S. operations. It may be sold to an American entity. Is that on the horizon, do you think, as a result of everything that we're kind of laying out here, at least initially?

I would think TikTok is definitely something that President Xi can give away because if Trump wants Xi to buy more U.S. agricultural goods, that's just not going to work because China has deflation going on right now. Everything that's producing China is much cheaper. And in terms of TikTok,

The Wall Street Journal reported that China is willing to consider treating it as just a commercial asset instead of an asset that has a national strategic interest, which means that they're willing to give it away to Trump. You know, let Biden's investors, who happen to be Americans mostly, decide what to do with TikTok.

Last week, speaking of technology, the big story that we were covering here was around deep seek. This raised a lot of concern about the degree to which China may be advancing in the AI race. It's still not very clear what was happening underneath the surface of this and whether or not American technology was in some way used to get these results.

But what has it done to kind of create greater tension between Washington and Beijing where it comes to kind of advanced technology?

I think basically it's a sign that US export controls have not really worked. DeepSeeker basically took some technological shortcuts. At the end of the day, constraint is the mother of all innovation. The Chinese have proved that they can use that physical constraint to do something actually pretty good.

And I think Trump and some of his fellow billionaires may have been quite surprised. A lot of those advanced semiconductors, and you and I have talked about this in the past, are manufactured in Taiwan. It's interesting because there have been a number of political analysts, including those at the American Enterprise Institute, that have suggested Trump's views on Taiwan may have shifted. And maybe he is a little less supportive now. And I'm wondering whether or not

That may allow Beijing to reconsider its strategy as it relates to Taiwan. What do you think? I think the issue with Taiwan is more than economic. President Xi Jinping is very into faith. He's a very proud man, and he has said that Taiwan is part of China, and I don't think he's going to change his mind on that. And also, in terms of just economic interests,

There are semiconductor manufacturers in China, SMIC for instance. It's a US-asserted and it's listed in Hong Kong. SMIC is not as good as TSMC, Taiwan's TSMC, but they're able to produce lower-end chips, which might just work for Chinese technologies like DeepSeq.

Is Xi Jinping painfully aware of the fact that he needs foreign investment to continue to flow into the country, particularly at this time? And is that another reason that he's going to be very careful about kind of pushing back against the Trump administration?

Absolutely. You know that the government wants to have foreignness and foreign investments. I mean, foreign investments are very important in China, especially in terms of employment of the young fresh college graduates, right? Like if you go to Shanghai or Shenzhen, a lot of young people, they're not happy. They just feel like they have no good jobs.

And also, you know, the Chinese government cares because they have been removing visa requirements for a lot of countries. They want foreign tourists. They want tourist dollars. They want investment and they want them to provide worker opportunities. How is China standing right now in the region holding up given everything that we're describing right now? Is it in a somewhat of a weaker position?

I think China hasn't been a very good neighbor to a lot of fellow Asian nations. And perhaps people don't like China as much, having said that, Chinese companies have been very eager to go abroad

because, you know, profit margin in the mainland is just so low because of this whole deflationary pressure. So Chinese companies have been going to Southeast Asia and to India to some extent to open factories and provide jobs. And that kind of helps a little bit, but still like a lot of the neighbors don't quite like the aggressive militant tone that Beijing is taking.

You and I have talked a lot in the past, Julie, about government stimulus. What are we expecting now, given everything that we're describing in terms of the macro on the Chinese economy? Would you expect the government to be forced to do a lot more to open up the spigot? Maybe not the full bazooka, but to do a lot more in terms of fiscal and monetary stimulus?

To be honest, a lot of investors are very disappointed. They feel that Beijing is gaslighting them because they've been talking about big stimulus since late September. And we saw that Chinese stocks piped a bit after the big announcements. But so far, there have been fewer actual concrete actions.

and a lot more empty words. And I think part of the reason is because of the fiscal dynamic in China. I mean, in China, it's more the local governments that are doing construction infrastructure projects. And these days, they just don't have much more rail to speak of because President Xi is doing anti-corruption drive and he is cutting civil servant pay. So people were like, why do we want to stick our head out and act?

Right. There is no upside and only downside. So he has a lot of, I would say, institutional problems to deal with. Surely we'll leave it there. Happy New Year to you. Thank you so much for joining us. Bloomberg opinion columnist Shuli Ren joining us from Hong Kong here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So the threat of a trade war loomed large over the equity market on Monday. We had the S&P 500 recovering from session lows. That was after Mexico's President Claudia Scheinbaum tweeted that the U.S. and Mexico had reached an agreement that would postpone tariffs for one month. So after having been down nearly 2% intraday, the S&P 500 closed off just 0.8% of 1%.

Joining me now for a look at the price action is Chris Saccarelli. He is the Chief Investment Officer at Northlight Asset Management, joining from Charlotte, North Carolina. Chris, thanks for making time to chat with us here. What did you make of today's price action overall?

So I think it was really interesting. You saw with the futures before even the cash opened that markets were down 2%, 3%. And as you mentioned, they quickly got down to those lower price levels. However, as news came in throughout the day that Mexico had agreed to some of Trump's demands, and later Canada did as well, you saw the market stage recovery. And so obviously, we didn't get...

we didn't earn back all of the losses, but you saw much of the earlier losses earned back and saw a retracement. And so that really just goes to show you that the market wasn't entirely prepared for the breadth of the tariffs or really the magnitude in terms of a 25% tariff

on Canada and Mexico. And that's why you saw that price action. And there was a little bit of a relief rally when it appeared that at least for now, it'll be postponed for a month. So I think you've got a little taste of what it would be like if we did impose tariffs. It was almost a shot across the bow, if you will. So there seems to be some level of negotiation happening. Are you comfortable with the idea that there won't be a full-blown trade war, that a month from now we'll have some type of an agreement?

Not necessarily. You know, I agree. I think the idea that the Trump administration is going to use tariffs as a negotiating tool is something that's been talked about. And I think the reason the markets have been pretty sanguine so far is that they've been anticipating that the Trump administration won't go through with the tariffs. It'll be really more bark than bite. But we're not so sure. We think at some point the Trump administration is going to impose tariffs. And to the extent that they do that, we will see those counter

uh we'll see those retaliations so whether that's tariffs and or boycotts from the countries that they impose tariffs on and so this could become a little bit more prolonged than the market's thinking in our minds a lot of people are just dismissing what's happening as more of a negotiating tactic and we think there may be more to it and we may end up with tariffs actually imposed on not only canada and mexico but also the european union as well i think this is going to be a story that's going to be with us for most of

of this year, it's not going to be something that's going to be quickly resolved within the first quarter. I would like to focus on a couple of the big news stories today. Next one, President Trump directing the creation of a sovereign wealth fund here in the States and Treasury Secretary Besant was saying the fund would be created in the next 12 months. Is this a net positive?

It's a really interesting idea, and clearly looking at what Norway and what other countries have done within their sovereign wealth funds, typically oil-rich or commodities-rich nations. So I think it's more of a nuanced picture. I think on the one hand, clearly the United States could stand to benefit from some of this economic power.

On the other hand, the US has the most deepest and most liquid markets in the world. And a lot of the strength of the United States, especially the economy, is that so much money and so much investment is in private hands. My concern would be that if you create this sovereign wealth fund and start putting too much power in the hands of the government,

it really will depend on exactly who's running that fund. And I know there's been an announcement of who will be the, we'll be reading the fund from the beginning, or at least there's an announcement on who may take, take the reins. But, you know, over time, like all other government programs, it's really going to depend on who's running them and what they do with those programs. That's something that I would be a little bit concerned with. And I think, you know, most people who love free market capitalism should have some concerns about. We heard from Palantir Technologies after the bell and the company

issued a full-year revenue forecast well above expectations. The company's CEO, Alex Karp, was saying this is due to untamed organic growth in demand for its AI software. And I'm looking at the stock right now, up 24% in late U.S. trading.

Last week, the big story was on DeepSeek, and this caused a great deal of introspection in terms of valuation. Are some of these companies overvalued? How are you reading the AI trade at the moment?

So for us, we've obviously been following it closely as most people have. And we think there is a lot of promise out there for artificial intelligence. And we didn't necessarily take the deep-seek news as negatively as most people did last Monday. We actually stepped in and did some buying ourselves the following day. But in our minds, it's clearly a demonstration that, first of all, China clearly is much farther ahead in terms of their development than we had originally thought. And the idea of doing sanctions in terms of more sophisticated chips

Either they're finding ways around those sanctions or they're figuring out ways to make do with less. In any event, we think it actually shows the promise of artificial intelligence. We're of the camp that if it turns out that you can do things more cheaply or on a larger scale, it will be more likely end up in a larger group of people's hands. It wouldn't be just concentrated within the hyperscalers.

So it does make sense to us that a company like NVIDIA, which really has almost a monopoly on the chips, would potentially be a little bit less valuable given this information, if it is true that you don't necessarily have to have the most cutting-edge chips or as many chips. But on the other hand, if you're a software provider or a user of AI, and I would say Palantir is in that category, as is Apple and some of the other companies, you saw that those stocks did a lot better, relatively speaking, versus NVIDIA. And so I think it's

it's just an additional wrinkle in terms of just thinking about AI in terms of a monolithic trade. And it's getting a little bit more nuanced where the idea that software companies where people who are using AI more cheaply and can get it into the hands of more people will actually benefit from what we saw last week and not necessarily be hurt by it. Chris, before I let you go, I want to get your take on some of the fun flow analysis that we have been looking at today. Data from Goldman indicating that in the most recent week,

Hedge funds were sellers of U.S. equities for a fifth straight week. But on the flip side, J.P. Morgan issued some analysis today showing that retail investors in the last Friday session alone poured more than $2 billion into the U.S. equity market. Who's got it right? It seems like we're bifurcated here.

Yeah, it does seem like you've got the institutional money on one side and retail on the other. And so like most things, I think there'll be a combination of both. It is our concern in the near term that the institutions, the hedge funds may have it right that now may be a good time to de-risk if you've got a shorter time horizon. However, if your time horizon is longer, you're looking at one year, three years, five years, et cetera, to the extent that retail isn't just following momentum and buying every single dip

just because they think they'll be quickly rewarded, but are actually putting money to work for the long term. I think both can be right. In the short run, we could have some type of a pullback or a lot of volatility in the next couple of months, next couple of quarters. But over the long term, I think you'll see a lot of the companies that have gone on sale will go on to much higher highs over the next three, five and 10 years. And so I think

If you're a long-term investor, it does make sense to start nibbling when you see some of these companies on sale. Chris, thanks so much for making time to chat with us. Chris Zaccarelli there. He is the Chief Investment Officer at Northlight Asset Management, joining from Charlotte, North Carolina, here on the Daybreak Asia podcast.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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